OXY: Occidental Petroleum Corp Message Board

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Gold/Mining/Energy : OXY: Occidental Petroleum Corp

OXY 40.71

+0.3%

3:59 PM EDT

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From: Dennis Roth	4/26/2007 7:59:21 AM
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Conservative way to invest in expected crude oil strength - Goldman Sachs - April 24, 2007 What's changed Occidental Petroleum reported adjusted 1Q2007 EPS of $0.98, ahead of the $0.91 First Call consensus estimate and our $0.90 projection. The positive variance was driven by lower-than-expected E&P costs. On its 1Q2007 earnings call, management provided its normal operational and financial guidance update, with no major surprises. We have made modest adjustments to our EPS estimates for the company. Implications We continue to view Oxy as the among the best positioned of the $40 billion-plus market capitalization integrated oils in terms of E&P resource upside and favorable leverage to our bullish crude oil macro view. We believe Oxy is well positioned to generate sustained excess returns on capital employed (ROCE) during what we now call “phase 2” of the multiyear “super-spike” period—a time when we expect oil prices to stay high and volatile but where significant cost inflation is eroding ROCE for poorly positioned companies. In Oxy’s case, we like its combination of core onshore US oil properties and Middle East growth projects. We also view favorably the company’s increasing commitment to return excess funds to shareholders via stock buyback and dividends. When we added Oxy to the Americas Conviction Buy List earlier this year, it was done so as a lower-beta way to benefit from long-term crude oil strength. As our confidence in a strong 2H2007 energy commodity environment grows, investors may increasingly want to focus on higher-beta alternatives in addition to Oxy. Valuation We see 9% upside to our revised $55 ($52 before) 12-month price target, which is based on asset value, cash flow, and P/E valuation analyses. Key risks Key risks are lower oil prices and production/reserve disappointments.

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